Counter-intuition

While we all wring our hands at gold being back under $1600, there may be reason to be joyous, instead.

Before we begin, please keep in mind that I have no idea what The Bernank and his minions will conclude his afternoon. How would I know? How would anyone outside of the Fed (and a few of their pals) know? So this is all guesswork, speculation and intuition.

Of course, we all can easily remember that virtually every time The Bernank has opened his mouth in 2012, the metals have been crushed. Regardless of what he says or doesn't say, down go the metals. Therefore, what you're seeing today is one of two things:

The spec short algos are attempting to front-run The Bernank. They expect similar action today and are trying to sell ahead of the news. This is akin to the old equity dictum, "buy the rumor, sell the news". Fundamentally, by selling before The Bernank, much of the selling "dry powder" gets exhausted. When the actual news hits, there are very few sellers left and, when you have less sellers than buyers, prices rise.
The Gold Cartel is gaming stops and jamming price lower, tricking HFT algos into selling even further. The Cartel then takes advantage of these lower prices to cover some shorts ahead of the news. (Remember, when an HFT algo sells, The Cartel is one the other side of the trade, buying.) Once the news hits, the metals rocket higher as shorts are squeezed and buy stops are triggered. This pre-news selling has the further effect of lowering the launching pad, too. Where yesterday a 2% rally in gold would have taken it to 1665, now a 2% rally only takes it back to 1630.

Either way, DOWN action this morning ahead of the 12:30 EDT FOMC headlines is a likely harbinger of much higher prices this afternoon.

Now, maybe you're saying to yourself: This Turd guy is full of crap. Well, OK, maybe I am. However, one of the events that began this amazing adventure for me took place on 11/3/2010. Do you recall what happened that day? That was also the day of some Fed announcements. The "markets" were waiting to find out IF QE2 was going to be initiated and for HOW MUCH? That morning, gold and silver were savagely beaten. On ZeroHedge, there was much hand-wringing and grinding of teeth. Into this mess strode The Turd with this:

by Turd Ferguson
on Wed, 11/03/2010 - 10:43
#695968

Obviously, Blythe decided to act early. The question is, what does this mean?

To me, the only reason for smashing gold now is this: The EE either knows or suspects that the QE2 announcement is going to be larger than anticipated and, therefore, PMs are going to rally sharply. So, crush the PMs now in order to cover shorts at lower prices before the blastoff.

Again, if anyone doubt the existence of the EE and their influence on today's action, simply look at a one-minute chart of todays' action. Violent one-minute downdrafts galore. Only the EE has the power to overwhelm the bid like that. They are clearly trying and succeeding in dropping price before the announcement. Again, why before? They are clearly afraid of getting their collective nuts and ovaries in a vise this afternoon.

I am very confident of a big price move UP later today.

Later that morning, I had the following exchange with a guy named "Harry Wanger", who old-time ZHers will recall was a real deltabravo.

by HarryWanger
on Wed, 11/03/2010 - 11:24
#696117

You think gold is getting hit now, just wait until 2:30. I hold lots of precious metals long term but am expecting a big sell off.

Image cannot be displayed

by Turd Ferguson
on Wed, 11/03/2010 - 11:28
#696125

Yes, Harry, but you may have already seen the majority of it. Don't look for gold to drop much below 1325 before the usual buyer(s) of size step in.

If Blythe had allowed gold to rally this morning up to 1385-90, I would be extremely nervous about what lies in store for us this afternoon. The fact that she chose to crush it before the announcement clearly means that the QE will be more significant than expected and that the PMs are going much higher.

So, here we are, in roughly the same position today. Because it's an election year, most everyone feels that the time is running short for The Fed to announce some kind of overt, new QE program. "If they don't announce it today, additional QE is OFF until after the election". Well, maybe. Again, what do I know?

What I DO KNOW is this: Having the metals under pressure before the Fedlines is likely a GOOD THING. We shall see.

More later today, of that you can be certain.

12:50 pm EDT UPDATE

Well, clearly, the market did not get an announcement of imminent, overt QE. This is not surprising. Again, it's an election year and The Fed is reluctant to make itself into political fodder.

After an initial plunge that was clearly timed to trip stops and create a cascade, the metals have rebounded. Gold continues to find buyers under $1600 and silver has buyers at $28 and below. Let's see how the rest of the afternoon treats us. As stated above in point #1, perhaps all those who were going to sell have now sold. In an environment where there are less sellers than buyers, prices rise. Maybe a couple of sweet-looking FUBMs on the way? We'll see...